CNY Rates - CSI300 opened 2.1% higher post the LNY holidays. There was likely some pent-up foreign demand to buy onshore equities after the week-long market closure. Net buy, via Northbound Stock Connect, amounted to CNY18.6bn, the higher daily inflows in 16 months. To maintain stable liquidity conditions around month-end, PBOC conducted 7D reverse repo ops of CNY128bn on Sunday and CNY173bn on Monday. Despite the large amount of reverse repo ops conducted pre and post-LNY, liquidity conditions appear to be slightly tight, as reflected by higher-than-average system and interbank repo fixings. We think that 5Y IRS and 10Y CGB yields at around 2.92-2.93% are pricing in a lot of recovery expectations, which we think is excessive for 1Q, since growth and credit data could continue to stay weak in the near-term. We expect to see small pullbacks in the coming weeks, before breaking above 3% in 2Q.
INR Rates - FY23/24 Union Budget will be presented tomorrow. We expect budgeted centre's deficit to decline to 5.9% of GDP, from 6.4% for current FY. Because of a higher nominal GDP, gross market borrowings would increase to INR15.5tn for FY23/24, from INR14.2tn for current FY. We think bond markets are already expecting bond issuances to be higher in the next FY, as seen by wide GSec-OIS spreads recently. Therefore, bond reaction to Budget today may be relatively muted, unless projected borrowings significantly surprise to the upside. Prospects are likely low for any announcements to help GSecs achieve index inclusion later this year.
IDR Rates - Today's conventional bond auction has an indicative target of IDR23tn and will also have a reopening of FRSDG001 (Sustainable Development Goals Bond). Awarded bids could come in above target to take advantage of low bond yields and likely strong bids from both foreign and domestic investors. For foreign investors, current IndoGB yields are likely seen as low and do not offer much valuation buffer relative to US Treasury. But investor interest to play the view of IDR catch-up in a soft US Dollar environment could still sustain strong foreign bond inflows. For local investors, the likely end of BI's rate cycle could boost bond demand, especially as Indonesia equities have been underperforming, partly due to equities flows rotating to North Asia to play the China reopening theme.
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